Corporate Sustainability Part 2

Part 2: The Business Case for Sustainability

The Business Case for Sustainability can be argued from both a negative and a positive rationale. It can be positioned simply as a case for business survival itself given the fact that business operates in a finite world but business models and inherent practices are linear in nature. Certain resources are in decline while the market for and associated consumption of those resources is still growing. This business case is based upon a not if, but when scenario. It is a “negative” business case or rationale.

On the other hand, sustainable business practices implemented in a variety of industries are providing bottom-line results. Case studies throughout the literature are heralding the various forms of return being realized from sustainability:

Operating cost re-structuring and reduction

Operating risk and liability management

Product/service innovation

Brand integration and reputation value

Development of new markets

Increased employee morale

Safety, etc.

This is a positive business case or rationale. Though many of the successful business case examples appear logical and enticing, it should be realized that like any other business initiative- “no “one-size” fits all”. Case examples of success are sometimes too easily “coined” best practices and, therein, copied by too many almost blindly. Best practices are not always the “best practices”. In other words, just because one business is doing it and reaping a reward does not simple translate into another business doing it and realizing the same reward. Every company is different and has its own set of drivers —strengths, dependencies, weaknesses, etc. — in terms of realizing value from initiatives, especially new ones. These drivers need to be understood and rationalized in any sustainability business case.

A business case for sustainability based upon achieving long-term (systemic) success has to be rooted in more than statistics or logic. Yes, many businesses who implement sustainable business process can amply demonstrate significant achievements and bottom-line results. However, businesses who do not implement sustainable processes can also demonstrate those same achievements and significant bottom-line results, too. Businesses who ignore or limit their efforts (hence, business case) for sustainability usually believe the current social constraints trying to be placed on human activities, as well as ecological limits, are temporary roadblocks to progress. And, that these obstacles can be overcome with better science and/or technology.

On the other hand, businesses who implement sustainability as a key business strategy do so because they truly believe in the existence of inviolable laws of nature. They understand and believe human actions must conform and comply with nature, or otherwise suffer eventual consequences. For them, this is not only an internal operating belief but a market perspective too. The key to a successful business case for sustainability is truly rooted in their beliefs about the future and not simply in the facts of yesterday that can influence the business today. Many studies and analyses have been conducted on successful companies that have and are making sustainability part of their corporate DNA. Upon close examination of these companies the attributes of leadership, insight and courage can be found (see side-bar information).

Companies Do Well by Doing Well

Harvard University study over an 11- year period on the concept of stakeholder management found socially responsible and sustainable corporations had sales growth four (4) times and employment growth eight (8) times that of “shareholder first” companies

Dow Jones Groups Sustainability Index (DJGSI) performed a five- year study and found companies engaged in sustainable business practices averaged 36.1% better than did the traditional Dow Jones Group Index. The report found that “sustainability strategies had a significant impact on the cost of external financing, return on invested capital, sales growth, and the fade-rate of a firm’s competitive advantage.”

Goldman Sachs report found that companies that are considered leaders in environmental, social and governance (ESG) policies also lead the pack in stock performance – by an average of 25%.

Kholberg, Kravis, Roberts & Company (KKR) states “The business case for environmental management has never been stronger”. In fact, KKR is expanding its Green Portfolio Program to cover 20 percent of the companies in its portfolio.

Carlyle Group, one of the world’s largest private investment firms, has teamed up with the Environmental Defense Fund to create Eco- value screen, a method Carlyle can utilize in undertaking due diligence pertaining to perspective investments.

The business case for sustainability pursued more from the perspective of opportunity (positive) than survival (negative) is compelling and worthy of analysis and pursuit as the data shows. However, if one is simply waiting on someone else’s’ business case as opposed to making their own, it may be too late, as Microsoft’s Bill Gates’ stated “If you can show me a business case, you’re too late.” Businesses in pursuit of opportunity are given chances every day to influence and/or create their own future; it is a matter of perspective, vision and decision making.

About the Author

John Meindl is a Senior Fellow in the Center for Corporate Learning and Development as well as an Adjunct Professor at Furman University. Mr. Meindl is a Board Member of several companies as well as a Managing Partner in a private investment firm wherein he actively educates and encourages the consideration and deployment of sustainable business initiatives to garner strategic advantage.